Monday, December 27, 2010

The rise of VA Tech

MEET Mr Rajiv Mittal


From an employee in a multinational's subsidiary to a team leader in a management takeover of the Indian operations and going on to acquire the parent company, it has been an interesting five years for Mr Rajiv Mittal, Managing Director, VA Tech Wabag.

Sitting in his corner office at the company's headquarters in Chennai, Mr Mittal recalls the transition that saw himself and his three partners, all of them first generation entrepreneurs, heading a company with operations in more than a hundred countries.

VA Tech Wabag of Austrian origin is now an Indian multinational and market leader in water management and recycling with operations in emerging markets. It's recent initial public offering was a success.

Entrepreneurship is “in born in your blood”, says Mr Mittal. But that is just the start and attributes his decision to go for a takeover to a belief in the potential to grow in the water sector, a sense of ownership and commitment to the company, willingness to shoulder responsibilities and be accountable.

When Deutsche Babcock decided to sell the Indian operations, he believed the buyers were not a “right fit”. Realising it was not feasible to go it alone, he sought the support of three of his colleagues — who are now among the promoters, Mr S.N. Saraf, the Executive Director (Operations); Mr Amit Sengupta, ED, Corporate Strategy, and Mr S. Varadarajan, Chief Financial Officer.

Entrepreneurial journey

“It was a courageous and brave decision at that point of time,” he says. While he describes himself as a “risk taker”, the others needed a bit of convincing. “Of course, not being from a rich family, we took the help of ICICI Ventures to put in a bid for management buyout”, and everybody chipped in to the extent possible. The team was on the verge of a tie up with an investor when ICICI “typically (came) with an aggressive approach with an offer we could not refuse and closed the deal”, he recalls.

But they were not taken seriously. For months the parent company “ignored us assuming that we will not have that kind of financial capability or backing”, recalls Mr Mittal. Finally when they realised the buyers wanted the management team to continue the operations, they had to come back, he says. As by then Siemens took over the global operations (in July 2005), the team closed the deal with Siemens in September. “This is how the four of us started our entrepreneurial journey.”

Another challenge was the staff's concern about losing the ‘MNC tag' to settle for an Indian company, a definite comedown in the eyes of their family and friends. But communication helped smoothen the way. Also, a decision to make ‘100 per cent of the staff' part-owners through employee stock option plans was received well though with mixed feelings.

But in 2007-end when GLG Partners, UK, bought a part of the employees' and company's stake, the employees got back 14-15 times the value. They realised “there is something in it and that brought in lot of energy, more ownership and passion into the job because they started owning the company more, and could tell families of the value from company”, he said.

‘Udaipur affirmation'

Mr Mittal refers to what the company calls the “Udaipur affirmation” — goals the team of four entrepreneurs had set in 2006. In five years, VA Tech would be a listed company; the consolidated turnover and market cap would be Rs 1,000 crore; the company would achieve an export order of $50 million, and establish a global presence.

It was a Rs 100 crore company when these targets were put into a ‘crystal pyramid', he recalls. The dream came true in 3-4 years. “This is the power of the mind. If you start thinking about it, start believing in it and act on it, then the dreams are achievable,” he says. And acting on it meant they did not keep it quiet but advertised it, spoke about it to the staff, put up posters and told the staff to paste it and believe and work towards it every day.

Unique deal

“When Siemens decided to sell Wabag globally, we decided this was a good time to mature and move into global scenario.” In a unique deal, it finally happened. “A reverse acquisition with a daughter company buying the parent, and to the best of our knowledge this was a first of its kind.”. VA Tech had won the bid beating seven European companies.

When the Indian management bought it, the valuation of the company was less than Rs 100 crore. But the parent company was pegged at about €17 million in a non-cash deal. They had to take over liabilities, give a bank guarantee and performance guarantee for the ongoing projects. “It was more a risk-taking ability than cash,” says Mr Mittal.

There were other challenges too. “India was our market and we knew the health of every project, knew the company as we were running it,” he points out. The team was a newbie to international deal-making. Due diligence had to be done for projects distributed over more than a 100 countries. The board too was apprehensive about a Rs 200-crore company going after a company 3-4 times its size. Yet experts doing the due diligence assured the company did not have any “unusual risks, apart from the usual business risks”. The board gave the go-ahead and ICICI ventures was a support throughout.

So what are the new goals that have gone into the ‘crystal pyramid'? Only one, Mr Mittal smiles. To be a billion-euro company in five years. We are now a $200 million company and need to grow five times.

There is a good pipeline of projects with an order backlog of about Rs 3,300 crore.

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